10 Tips to Sell Your Business

10 Tips to Sell Your Business

Owning a business is an investment that can be nurtured and grown like any other investment. For many people with a small to medium business, the business will be their second largest asset, after the family home. It follows that when it comes time to sell the business, you will want to obtain the maximum possible sale value.

We list below our top 10 tips on how to realise the maximum possible sale value for your business and make the sale process as smooth as possible.

1. Ensure you leasing arrangements are in good order

Check that any transfer of lease or renewal of lease was properly documented and that you have a copy of fully signed documentation evidencing the transfer or renewal.

Locate the original fully signed Lease for the Business premises and have copies available to provided to prospective Purchaser. The original Lease will need to be handed to the Purchaser on the day of settlement.

2 Understand your rights and obligations

Have a good understanding of your rights and obligations under your Lease and ensure that you are fully compliant with all obligations. Look at things such as outstanding outgoings contributions, repainting or redecoration obligations, insurances held and obligations to maintain equipment such as an air conditioner system.

If you are uncertain or have queries about what your obligations are, we recommend that you seek advice form a solicitor experienced in business leasing.

3. Maintain a good relationship with your Landlord

You must obtain consent from your Landlord to transfer the Lease to a purchaser. If it wanted to, a Landlord has significant ability to cause problems and/or delays in the sale process under the guise of considering whether or not it will provide its consent.

It is up to the Vendor to provide the Landlord with sufficient documentation and evidence to satisfy the Landlord that a proposed purchaser is a suitable person to take over the Lease. Having a good relationship with your Landlord will often substantially speed this process up.

4. Make sure your books and records are in good order

Prepare profit and loss statements and balance sheets for each of the three financial years prior to the sale. Disclosure obligations require these items to be provided to a purchaser anyway but, having the books and records in good order during the early stages of a marketing campaign may help to secure the attention of an interested Purchaser.

We have often observed that nothing turns off a potential business purchaser as much as having to wait for weeks to receive financial materials from a Vendor.

5. Make a list of all plant and equipment you want to sell with the business

Make a thorough list of all plant and equipment that you propose to sell with the business, including make model and serial numbers. Any items which are subject to hire, lease, or finance arrangements should be clearly identified or kept on a separate list.

Inaccurate descriptions of the plant and equipment that is sold with a business is a leading cause of disputes between Vendors and Purchasers which only arise after the sale of a business has been concluded.

6. Identify and remove any finance encumbrances

Identify any mortgages, charges, liens or other finance encumbrances which have been used to secure finance for the business, then speak to your finance provider to find out how these encumbrances can be removed and satisfy yourself that you will be able to have the encumbrance removed prior to settlement. Most financiers will require 3-4 weeks’ notice prior to the intended settlement date in order to release the finance encumbrance at settlement.

One of the biggest causes of delays to the settlement of a business sale is when the Vendors financier is unable to unwilling release the encumbrance from a business asset in time for settlement.

7. Intellectual property and Trade marks

Identify all intellectual property that may be documented and handed over to the Purchaser in order to improve the goodwill of the business. Intellectual property includes things such as trademarks, patents and secret recipes as well as things like a database of clients’ details or a manual setting out systems and procedures to be used in a workplace.

To identify the intellectual property of a business, consider standard things such as the business name, email addresses, phone numbers, PO Box etc. Also look at other items such as logos or slogans that the business uses, advertising materials previously used to promote the business, or procedure lists and operation manuals which have been developed by employees of the business. IF it has not yet been registered, you may wish to apply for a trade mark or take other steps to document and protect the Intellectual Property of your business.

8. Create Additional Value

To increase the value of your business’ good will, ensure you have a database of all clients of the business including clients contact details and listing previous transactions you have completed with that client.

You may also offer to take additional steps above and beyond a Vendor’s usual obligations to provide assistance to a proposed Purchaser to facilitate clients being introduced and handed across after settlement. For example, by offering to send out a letter to all previous and current clients introducing and recommending the incoming owners/managers to the existing clients, you are likely to reduce the number of clients who take their business elsewhere once they are no longer dealing with the vendor.

By taking steps to increase the client retention rate, you are effectively increasing the profitability of the business after settlement and hence increasing the goodwill of the business. By having the framework for these steps in place prior to negotiating the sale price, the Purchaser will be able to take the added value created by these steps into account during negotiations.

9. Staff

Ensure that all staff have signed appropriate employment contracts which (where suitable) provide for issues such as:

A restraint of trade on the employee after leaving the business which prevents the employee from poaching, stealing or contacting clients of the business after the employee leaves;

Protection of confidential information and intellectual property of the business;

Designs, inventions, procedure, documents or other intellectual property created by an employee during work hours is agreed to be the property of the business, not the employee.

10. Prepare an info packet for the potential purchasers

Prepare for an information package that can be provided to each potential purchaser who expresses an interest in the business. This package should highlight all of the reasons why the business is likely to preform well in the future and discuss what the seller has done or will do to assist a buyer to achieve good performance.

The package should also provide as much information and financial data as the vendor is comfortable in providing to the world at large, but not include any information which could be used by a competitor to the detriment of the business.

Once a purchaser is up to the stage of being interested enough to enter a contract or expression of interest which contain confidentiality restrictions, then further information and financial data can be provided under the security of confidentiality.

By taking the time in advance to consider the issue of how much information to provide a potential purchaser at each stage of the sale process, and having the information available to be provided upon request, a vendor can dramatically speed up the negotiation process, reduce the risk of a potential purchaser becoming frustrated with delays in provision of information and thereby increase the level of interest an eventual sale price.

We can Help….

PCL Lawyers are experienced in commercial business transactions are results focussed.

We can assist you with the legal aspects of selling your business by providing you with concise and cost effective legal advice.

To discuss your matter and how we can help you in your business sale process contact our business lawyers on 1300 907 335 or complete an online enquiry form.

About PCL Lawyers

Concise Legal Advice.

Commercial Understanding.

PCL Lawyers are a focussed on providing commercially sound legal advice to our business and individual clients. We are a full-service legal firm practicing in business law, disputes and litigation, property and family law.

Please note: the above article is not legal advice. Every circumstance is different. It is critical that you obtain legal advice in relation to your personal circumstances before taking any action.

© PCL Lawyers 2020

 

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